Bill Gurley of Benchmark Capital predicts VC funding may drop in half again.http://bit.ly/iS95Z . AT&T's massive cuts in research a decade ago are probably costing them well over $1B/year, although that's impossible to prove. U-Verse was two years late, easily $1B over budget, isn't close to reaching the expected rate/reach, and key features such as bonding aren't working three years after they were promised to customers. Some share of that would have been averted if they hadn't scaled back their technical staff and Bellcore so drastically. Along the way, AT&T and lead supplier Alcatel had several $100M disputes, where Alcatel had the bargaining power because AT&T didn't have the technical capacity to replace them. (THat's one reason Adtran has been winning major contracts from Alcatel. Things worked out eventually, but it will be years before the same trust is restored.

Innovation continued until recently, largely fueled by venture capital backed firms in Silicon Valley. VC money for telecom virtually dried up a few years ago, and some of the most promising advances were unable to get funding. Alcatel and the other traditional telco suppliers have drastically cut back. Meanwhile, CableLabs has delivered 50 meg DOCSIS 3.0 (upstream as well) and has a slew of interactive TV, personalized advertising, and other advances that will give cable a strategic edge.

Telcos ate their seed corna decade ago. There will never be another Bell Labs as it was, but if the carriers don't invest for the future, no one else will advance wireline and other key technologies. Even 2% of sales would make an enormous difference. Randall is right that discovering the cosmic background radiation didn't help telco bottom lines. But he has millions of satellite TV customers, and even minor advances in beamforming for more channels would be worth tens of millions.